Why do cryptocurrencies create governance challenges for banks and regulators?

Why This Matters for Security Teams

Cryptocurrency governance is hard for banks and regulators because the activity can look like payments, speculation, custody, or cross-border value transfer depending on the workflow. That ambiguity breaks traditional control design: the same asset may trigger different legal, AML, liquidity, consumer-protection, and operational-risk obligations. Current guidance from the NIST Cybersecurity Framework 2.0 still depends on clear asset classification and ownership, but crypto ecosystems often spread control across wallets, exchanges, bridges, custodians, and self-hosted keys.

NHI Management Group research on governance gaps shows how quickly hidden control points become material in practice. The 2024 ESG Report: Managing Non-Human Identities found that 72% of organisations have experienced or suspect a breach of non-human identities, which is a useful analogue for crypto governance because both involve machine-to-machine trust, weak visibility, and hard-to-enforce accountability. Banks cannot rely on the same review rhythm they use for ordinary vendor access when transfers can settle globally in minutes and controls must follow the asset, not just the customer.

In practice, many security teams encounter control failures only after a wallet, exchange integration, or custody workflow has already been used in a way policy never anticipated, rather than through intentional governance design.

How It Works in Practice

Effective crypto governance starts by separating the underlying activity into distinct risk domains. A bank may need one rule set for customer speculation, another for merchant payments, and a third for treasury or custody operations. The issue is not simply whether cryptocurrency is allowed, but which control objective applies at the point of use. That is why firms increasingly map activity to business purpose, source of funds, transfer destination, and beneficiary type before deciding how to proceed.

Operationally, this means controls must be layered across onboarding, transaction monitoring, custody, and incident response. Banks often need to verify wallet ownership where feasible, restrict high-risk geographies, watch for mixer exposure, and distinguish internal ledger movements from external blockchain transfers. The Ultimate Guide to NHIs — Regulatory and Audit Perspectives and Ultimate Guide to NHIs — Key Challenges and Risks are relevant here because they emphasise the same core problem: durable trust without durable visibility is a governance blind spot.

• Classify crypto activity by use case, not by asset label alone.
• Apply risk-based monitoring to wallets, exchanges, and custodians as separate control surfaces.
• Require escalation paths for sanctions screening, fraud signals, and unusual transaction patterns.
• Align legal, compliance, treasury, and security teams on who approves exceptions and who owns ongoing review.

Frameworks such as NIST Cybersecurity Framework 2.0 help structure governance, but current practice still depends on local regulatory interpretation because there is no universal standard for crypto treatment across all jurisdictions. These controls tend to break down when custody, trading, and settlement are bundled into one platform because accountability becomes fragmented across multiple providers.

Common Variations and Edge Cases

Tighter crypto controls often increase friction, requiring organisations to balance fraud reduction and compliance assurance against customer experience, liquidity, and speed. That tradeoff matters most in regulated banking environments where legitimate transfers can be delayed by enhanced review, especially when a policy treats every blockchain transaction as equally risky.

Some edge cases are especially difficult. Stablecoins may behave like payment instruments in one context and like short-term liquidity exposure in another. Cross-border transfers can trigger multiple supervisory regimes at once. Self-custody creates a different challenge altogether because the institution may see the transaction but not control the keys. Best practice is evolving, but there is no universal standard for whether banks should primarily govern the asset, the channel, the wallet, or the underlying customer relationship.

The Top 10 NHI Issues is useful as a governance analogy because the hardest problems are usually visibility, lifecycle control, and privilege boundaries, not the technology label itself. For crypto, the same pattern appears when a control owner cannot consistently prove who controls a wallet, who approved the transfer, or which policy exception allowed it. In those cases, governance drifts from preventive control to after-the-fact investigation.

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